Telecom takes fresh tack with Spark label and internet TV service

Shares fall after telco announces name change and internet TV service plans

Simon Moutter says the new name denotes change. Photo / Dean Purcell

Telecom chief executive Simon Moutter says his company's name change is a "marker", showing that its future is very different from its past.

Telecom this year plans to re-label itself "Spark", a rebranding exercise reckoned to cost about $20 million.

"It's not a name change, it's a symbol of a real commitment in this business to be a different company," Moutter told the Weekend Herald.

Telecom is about a year into its push away from being an infrastructure company to being a "modern digital services provider".

"We're not about home lines any more and landlines, that's a small part of the business. We're about mobile, we're about digital, we're about data, we're about TV, we're about entertainment," Moutter said yesterday.

Telecom's half-year financial result indicated that its strategy was working, Moutter said, as well as giving the company the view that it has "an improving outlook for the second half and into the following financial years".

Investors, however, did not respond warmly to the announcements and Telecom shares closed down 1.66 per cent to $2.375.

Moutter did not see the name change as a risk for Telecom, even though he thinks some customers will say they're switching because they don't like "Spark".

"The name will be what we make it and people will buy from it based on what we do and deliver," he said.

Telecom's other big announcement yesterday - its planned internet television service called ShowmeTV - "of course" came with risks, Moutter said.

"If we perform poorly and don't get many customers to watch we'll be under water that's for sure," he said.

Asked how ShowmeTV would avoid becoming another QuickFlix, an online content service which is criticised for its lack of quality content, Moutter said: "We have enormous marketing reach, we have relationships with millions of New Zealanders already, we have a distribution capability and a marketing capability that is vastly superior to a QuickFlix.

"We'll be resourcing the quality of that content library to a level that is substantiality superior," he said of ShowmeTV, which will launch in the coming months.

Moutter said the Telecom venture was not directly challenging Sky Television, which has a near-monopoly on pay television in New Zealand.

"From around the world, we see these new content offerings taken really as a complementary offer to more linear-orientated or channel-structured pay or free TV.

"We see [ShowmeTV] as potentially very complementary and offering a new style of viewing with a new package of content which many people will take in addition," Moutter said.

Sky Television chief executive John Fellet said he had heard that Telecom was planning a subscription video on demand (Svod) service, similar to Netflix, and such services tended to be complementary to pay television businesses such as Sky TV, rather than taking customers away.

"Netflix I think has 40 million subscribers in the US and the US hasn't lost any pay TV subscribers," he said. "And 80 per cent of all the Netflix subscribers in the UK also take [pay TV service] BSkyB.

"I don't [know] whether this service will look like Netflix so it's tough for me to draw a conclusion, but around the world the typical Svod services tend to be more complementary to full-scale services like Sky."

Asked how he rated Telecom's chances in securing the high-quality content ShowmeTV would require to succeed, Fellet said: "It's a pretty open market out there so if you've got a big enough cheque book and want to have a go at it getting the content is one step and trying to advertise it is another."

Moutter said Telecom would be budgeting $20 million in the next financial year for ShowmeTV. About 75 per cent of this would be for operating costs, mostly for buying content.

Fellet said $20 million sounded like a sufficient pool of capital to get such a venture off the ground.

Name-change 'gamble' sparks some misgivings

Telecom's plan to change its name to Spark is a big gamble, but it could help do away with the telco's "old fuddy duddy" brand image, a marketing expert says.

University of Auckland senior marketing lecturer Mike Lee said one of Telecom's greatest strengths was its reputation as an established brand.

"So for anyone coming in from overseas or other businesses that might be coming into New Zealand, Spark is going to pretty much - on the perceptual mind map - put them right next to Woosh or Slingshot or any of those more dynamic, smaller brands, rather than Vodafone, which is internationally known," he said. "They were established and old fashioned, but that was also one of their greatest strengths, in my opinion."

Lee said the name change suggested Telecom had decided the older generation of consumers would not remain profitable for much longer.

"So they're trying to capture that younger generation as people leave school and Spark, being a more dynamic name, may be more appealing to them," he said. "The older generation probably won't be affected too much because effectively, in such a small market, people will just stay put [with Telecom] ... But it is a big gamble and it is a big change."

Lee said it was positive that Telecom had made a lot of changes within its business, such as its split from Chorus, before the name change.

"Whereas usually companies change their name and their logo and then don't do any business changes - that to me is a sort of slap of fresh paint approach."

Technology adviser and entrepreneur Lance Wiggs said it was hard to know whether the name change was serious.

"What is Telecom? Telecom is a telco. Its reliability, its size and its history combine to give us confidence that it can be trusted with our data and mobile phones and so forth and changing its name from something which has the solidity of Telecom to something with the ridiculousness of Spark to me is a giant step in the wrong direction. It's taking away all the brand value that they've got."

Wiggs said the name change was a distraction from the changes going on at Telecom. "Air New Zealand didn't change their name on their transformational journey so why should Telecom?"

Peter Griffin of the Science Media Centre said although he understood why Telecom wanted to appear different, he believed that abandoning that "well-respected" name was a mistake. Christopher Adams, Hamish Fletcher